Last Updated on May 14, 2020 by CCAR Staff
It’s human nature to want an economic forecast that boldly states: “The downturn will be THIS deep for THIS many months followed by a rebound THIS big.”
There are plenty of these projections to choose from in this coronavirus era. From calls for a quick V-shaped down, then up to predictions of a “U-shaped” cycle, a deep dip then slow recovery, to warnings of total economic disaster ahead.
So, I was impressed when Adam Fowler, the director of research at the UC Riverside School of Business’ Center for Economic Forecasting and Development, answered my “what’s next?” question this way …
“My crystal ball is cloudy.”
This is a guy who’s got piles of economic data detailing the ups and downs of the business climate. He knows the economy, regionally and globally, is hurting from business limitations designed to slow a pandemic’s spread. He’s keenly aware of a raging debate about the best techniques and proper speed of lowering these economic barriers.
However, Fowler points out, nobody seems to have any solid hunches on what the pandemic will do next.
“The one big variable is the virus, and it’s in the driver’s seat for the time being,” Fowler says.
Screeching halt
Fowler’s center just reported that economic growth in the Inland Empire has come to a screeching halt. That’s true for much of the world, too, due to the fight against coronavirus.
Business activity in Riverside and San Bernardino counties, long-running success stories since the Great Recession, contracted in the first quarter an annualized rate of 0.2%, says a UC Riverside index. That’s down from 2% in the fourth quarter and only the second decline since 2012.
The index’s dip can be blamed on “stay at home” policies that slowed job growth, bumped up unemployment and shrank taxable sales. The center estimates the current quarter won’t look any better.
But looking much farther ahead requires too much guessing about the progress of the virus — and the battle against it, Fowler says.
The truth is, any guessing game regarding long-term coronavirus economic impacts is a multi-dimensional puzzle that’s probably best answered with “let’s wait and see” vs. precise numbers.
This is a global health crisis with no easy solutions. It’s a situation in which death vs. profit is part of the math. And how do you handicap the timing for significant medical breakthroughs, whether that be a cure or a vaccine?
Massive government assistance, both consumer and corporate stimulus, has eased a chunk of the economic pain of “putting the economy on ice,” Fowler notes. For example, generous jobless benefits somewhat negate the buying power loss typically associated with huge jumps in joblessness like we’ve seen lately.
“Throwing all this money at this, that’s smart,” he says.
Reopening risks
Now, here comes the promised and methodical business reopenings.
“Open for business” doesn’t say much these days. Broadly speaking, how do consumers react to a more crowded life? How does business react to renewed (but not full) opportunities?
Or what about the seemingly smaller things. Will we see a smooth restart to a world’s worth of supply chains, some very damaged?
“It’s hard to completely understand what reopening looks like,” Fowler says.
Don’t overlook all the costs incurred by governments at national, state, and local levels. How policymakers decide to pay for these gigantic expenses is another big economic unknown, Fowler says.
Then forget economics. Nobody knows how coronavirus testing, cases, hospitalizations, and deaths — what will really decide the economy’s fate — will trend as more people interact with greater frequency in closer proximity.
Finally, once you’ve placed all those bets, all you have to do is forecast the reaction — politically and economically — to whatever does happen with the virus and the economy. Does that reaction change future stages of reopenings?
“We’ve thrown the economy into the freezer,” Fowler says. “We’ll thaw it out when public health issues are taken care of.”
